By demanding that the Baucus health-care bill toughen the coercive penalties to force young Americans to sign up for private insurance, industry lobbyists have inadvertently made the most dramatic argument to date for including a strong public option in any health reform law.

After all, the bill sponsored by Senate Finance Committee Chairman Max Baucus, D-Montana, already was widely regarded as industry friendly. It had scrapped the public option, a lower-cost government-run insurance alternative that the industry hated because it would create strong competitive pressures.

Plus, there appeared to be plenty of goodies for the industry. The Baucus bill, which is expected to clear the Finance Committee on Tuesday, would impose “an individual mandate” on Americans, requiring them to buy insurance or face a government fine. The bill also contained government subsidies to help modest-income citizens pay for their insurance.

So, the industry stood to gain an estimated 27 million new customers and get federal subsidies to boot.

But industry lobbyists began to send signals last week that they wanted more. They feared that the government fines would not be coercive enough to force many healthy young Americans to sign up for insurance, meaning that many new customers might be just the ones the industry doesn’t want – people who are sick and need medical attention.

Without more severe government penalties on young Americans, the lobbyists warned that the industry would jack up rates on everyone.

“Between 2010 and 2019 the cumulative increases in the cost of a typical family policy under this reform proposal will be approximately $20,700 more than it would be under the current system,” said Karen Ignagni, president and chief executive of America’s Health Insurance Plans, the industry’s lobbying arm which commissioned the price study by PriceWaterhouseCoopers. [Washington Post, Oct. 12, 2009]

In other words, the private health insurance industry is demanding more concessions in the reform bill – particularly stiffer fines on Americans who balk at signing up for health insurance – or the industry will make health insurance even more expensive for Americans.

Yet, while the industry may view its new hardball tactics as smart politics, its threats of sharply higher insurance premiums may backfire. The admission that the industry can’t control costs without greater government coercion on citizens may end up simply dramatizing the value of a strong public option.

The public option, which could cut costs by piggybacking on the existing Medicare bureaucracy, was always the one possible route to substantial savings. Based on Medicare’s experience, a public option could operate with an overhead of around two percent compared to the 20 percent or more that private insurers take for administrative costs, executive salaries and profits.

If a public option were available to individual consumers and small businesses – as four bills that have passed other congressional committees call for – then customers could get coverage at a lower price and thus the mandate to buy insurance would be less burdensome.

Rather than strong-arming Americans to get private insurance by imposing stiffer fines, Congress might find the public option a far less draconian alternative, one that would enable more people to afford health insurance and thus make the need for penalties less necessary.

That, of course, was the reason private insurers worked so hard to demonize the public option as “a government takeover” of medicine and lobbied aggressively to make sure it was rejected by the Senate Finance Committee.

Yet, even with the public option stripped from the Baucus bill, Congress finds the industry ratcheting up the pressure to get more concessions or to kill the reform package altogether.

The industry’s move, however, represents a gamble, in that Democrats might finally recognize the potential for their own political suicide if a new health-reform law turns the federal government into the enforcer for an industry that has long prospered from the business of paying as few medical bills of sick Americans as possible.

Rather than using fines to muscle more citizens into the arms of private insurers, the Democrats might finally rebel against the lobbyists and make sure that a strong public health-insurance option is available as an alternative to private policies. Just the outcome that the industry feared most.

Robert Parry broke many of the Iran-Contra stories in the 1980s for the Associated Press and Newsweek. His latest book, Neck Deep: The Disastrous Presidency of George W. Bush, was written with two of his sons, Sam and Nat, and can be ordered at neckdeepbook.com. His two previous books, Secrecy & Privilege: The Rise of the Bush Dynasty from Watergate to Iraq and Lost History: Contras, Cocaine, the Press & 'Project Truth' are also available there. Or go to Amazon.com.

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